Australian house prices predicted to decrease dramatically

There’s bad news for homeowners with warnings the overheated property market is going to slump much sooner than predicted.

Skyrocketing house prices are predicted to stall across Australia by May and to even drop by the end of December, according to Westpac, before a dramatic decrease in the coming years.

The major bank has predicted that overall house prices will rise by just 2 per cent for the whole of 2022.

It’s a stark difference to the whopping 22 per cent increase in property prices in 2021 – the strongest annual growth since 1989.

Westpac has further predicted Australian house prices will fall by 7 per cent in 2023 and by a further 5 per cent in 2024 in its latest report.

However, from the three months to February, the Westpac Housing Pulse reports showed that the Australian housing market actually rose by 2.5 per cent, while property sold in Sydney and Melbourne are still well above long term averages.

But Westpac has predicted the fear around incoming interest rates rising as well as increasing inflation is going to have a chilling impact on the housing market.

“Housing will be ‘collateral’ damage in the RBA’s efforts to keep inflation on target over the medium term,” warned Matthew Hassan, senior economist at Westpac.

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Westpac has forecast price drops of 14 per cent combined for 2022 and 2023. Picture: David Swift/NCA NewsWire

Mr Hassan also highlighted that the signs of a slow down were already on show, even though “extremely low levels” of stock still plagued the market.

“Auction markets softened a touch into year end and look to have begun in 2022 with a similar tone,” he said.

For the week ending February 20, Sydney’s auction activity exceeded 1000 for the first time in 2022 with a clearance rate of 75.6 per cent, but it was a dramatic drop from the 83.4 per cent success rate at auctions at the same time last year.

Meanwhile, nationally successful auctions hit 74.6 per cent down from 79.6 per cent recorded the same time last year.

However, Mr Hassan added Covid influences and summer holidays were also making the outlook for the market hard to predict.

But Queensland was one state expected to buck the price doom trend, according to its report, as it finished the year “with an extraordinary 10 per cent of the dwelling stock changing hands”.

Queensland market is booming. Picture: John Gass/NCA NewsWire

Price momentum in Queensland also bucked the wider slowing trend seen nationally, with a rollicking 8.5 per cent gain, Westpac found.

“Remarkably, annual price growth in Brisbane is now just under 30 per cent a year. The detail shows particularly strong gains for houses and ‘top tier’ properties,” Mr Hassan said.

“Brisbane’s West led initial gains but outer suburbs such as Ipswich are now driving gains.

“Regional performances vary widely, the Gold and Sunshine Coasts showing comparable

gains to Brisbane but international tourism-dependent Cairns barely eking out double digit growth.”

Westpac had previously forecast that house prices would lift by 8 per cent in the first half of 2022, before stalling for the rest of the year.

Nationally, house prices were predicted to drop by 14 per cent between 2021 and 2024.

Westpac said the housing market is set to stall soon. Picture: John Gass/NCA NewsWire

Westpac has also predicted that the RBA’s record low interest rate of 0.1 per cent will rise from August, which would impact housing affordability and the amount people could borrow.

According to CoreLogic, the typical Australian property price now sits at $718,146.

Yet someone earning an average salary of $90,329, who had a 20 per cent deposit, would still fall foul of lending regulations.

A mortgage of $574,517 based on the typical property price would still see their debt to income ratio sitting at 6:3.

However, Australian Prudential Regulation Authority considers a debt-to-income ratio of six, to be at a red flag, which could see a borrower struggle to meet monthly mortgage repayments.